Here’s what to know about new withholding tax regulations

The Federal Government of Nigeria (FGN) recently announced withholding tax (WHT) exemptions and reductions for Small and Medium Enterprises (SMEs). The regulation exempts SMEs with an annual turnover not exceeding N25 million, which is N2 million in a calendar month.

It also exempts businesses in manufacturing, agriculture, and other production activities regardless of their turnover, as well as sales in cash or instant electronic payments. The new regulations commenced on September 30, 2024, while implementation begins on January 1, 2025, to allow for a minimum of 90 days’ notice required for tax changes.

However, an early adoption may be permitted subject to guidelines issued by the relevant tax authority. This means that SMEs are no longer required to deduct tax on payments to their suppliers.

Withholding tax applies if the supplier has no Tax Identification Number (TIN) or where the total payment to a supplier in one month exceeds N2 million except for transactions. Where a supplier has no TIN, the withholding tax rate on such payment is doubled.

Here is a list of transactions covered by the withholding tax regulation:

1. Any distribution or dividend payment to a Real Estate Investment Trust or Real Estate Investment Company.
2. The interest and fees paid to a Nigerian bank by direct debit of the funds domiciled with the bank.
3. Imported goods where the transaction does not create a taxable presence in Nigeria for the foreign supplier.
4. Telephone charges, internet data and airline tickets.
5. Out-of-pocket expense that is normally expected to be incurred directly.
6. Insurance premium
7. Supply of Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Premium Motor Spirits (PMS), and Automotive Gas Oil (AGO)
8. Low Pour Fuel Oil (LPFO), Dual Purpose Kerosene (DPK), and JET-A1
9. Commissions retained by a broker from money collected on behalf of the principal are in line with the industry norm for such transactions.
10. Winnings from a game of chance or a reality show with content designed exclusively to promote entrepreneurship, academics, and technological or scientific innovation.